1. Technical Field
The invention relates to electronic fund transfers. More particularly, the invention relates to a method and apparatus for preauthorizing electronic fund transfers without obtaining actual written authentication.
2. Description of the Prior Art
Perhaps no industry is more regulated by the Federal government than the financial services industry. It is difficult to bring new financial products to market because of this regulatory environment. Yet the growth of the Internet and electronic commerce has thrust the need for more creativity on purveyors of financial products in meeting the letter and spirit of these regulations when offering new or enhanced types of products that exploit the rapidly expanding ability to perform almost any type of transaction electronically. In the context of a financial institution, such electronic transactions are generically referred to as electronic fund transfers (EFTs). EFTs are of many types. For example, EFTs can be preauthorized, such that recurring electronic transactions may be implemented.
As an example of the regulations imposed upon financial institutions with regard to EFTs, consider 12 CFR Part 205 [Regulation E], which implements the Electronic Fund Transfer Act (EFTA). Section 205.10 of the EFTA sets forth the substantive and disclosure requirements for authorizing preauthorized transfers to and from a consumer's account. A key provision of the EFTA is Section 205.10(b) Written authorization for preauthorized transfers from consumer's account (“Preauthorized electronic fund transfers from a consumer's account may be authorized only by a writing signed or similarly authenticated by the consumer. The person that obtains the authorization shall provide a copy to the consumer.”).
Within Section 205.10(b) is the notion that EFTs may be “similarly authenticated.” This aspect of the EFTA would seem to provide a mechanism for overcoming the onerous requirement of obtaining written authorization for all EFTs. The National Automated Clearing House Association (NACHA) addressed what constitutes “similar” authentication in its Policy Statement On Spontaneous Internet Purchase (2 Dec. 1997), in which it stated: “The term similarly authenticated includes the use of a digital signature or other code. To meet the requirement that an authorization be in writing, an electronic authorization must be able to be displayed on a computer screen or other visual display that enable the consumer to read the communication. The authorization also must be readily identifiable as an authorization, must clearly and conspicuously state its terms, and must provide that the receiver may revoke authorization only by notifying the Originator . . . ” (Subsection 2.1.2, Receiver Authorization and Agreement)
The Board of Governors of the Federal Reserve System has provided an Official Staff Interpretation (1 May 1996) of the “similarly authenticated” requirement of the EFTA, stating: “ . . . for a home banking system to satisfy the [similarly authenticated] requirement, there must be some means to identify the consumer (such as a security code), and the consumer must have the ability to obtain a printed copy of the authorization . . . . Preauthorized transfers in an electronic system should be authenticated by a method that provides the same assurance as a signature in a paper-based system.”
While the “similarly authenticated” requirement of EFTs has been explained, no suggestion is provided with regard to its implementation in an electronic system. The “use of a digital signature or other code” may be sufficient discussion to enable those skilled in the art to adapt their systems to comply with such requirement in some cases. However, the technical obstacles to surmount in addressing the strict requirements of such regulations presently prevent financial institutions from offering a variety of financial products. Further, such techniques as may be known for providing a digital signature or other code involve the use of computers, yet many consumers do not own computers or, if they do own computers, they are not necessarily sufficiently versed in the use of their computers to generate the necessary “digital signature or other code.”
An example of a financial product that could be offered by, or on behalf of, a financial institution through a direct marketing program is a mortgage acceleration product. Such product is often offered to a mortgagee during the term of the mortgage as a vehicle for reducing overall costs of the mortgage. Such product is typically offered through a direct marketing solicitation as a value added mortgage option that the mortgagee may purchase. Key to such product is the ability of the mortgagor to withdraw mortgage payments from the mortgagee's account on a regular basis, for example by EFT.
There is presently no mechanism available for a financial institution to offer such value added financial products to consumers as part of a direct marketing effort, while at the same time complying with the requirements of the EFTA, in the absence of actual written authorization from the consumer. It would be advantageous to provide a method and apparatus for preauthorizing electronic fund transfers without obtaining actual written authentication.